31 August 2018
The stylized game-theoretic analysis on the risk of supply chain disruption
Supply chains are observed in many industries which provide with essential goods for the modern life. Producers which form supply chains decide the amount of input from suppliers and the number of suppliers they deal with under the possibility of supply disruptions, which might cause serious damage to the firm itself and to the consumers.
This study analyses the decision making of the producers given the uncertain realization of supply, using the model of Cournot competition. It aims to find the plausible decisions by producers and the way to minimize the risk of supply disruption.
Through the analysis, we find that under sufficiently high management cost and weak risk aversion of the producer, the optimal number of suppliers is 1, the smallest and the same as that in the absence of the uncertainty, even if the productivity and some other parameters greatly changes. On the other hand, when the management cost is sufficiently small, and the producer is highly risk aversive, the number can be more than 1 and non-trivial. However, under this situation, the increase in productivity or some other parameters reduce this number and the harm caused by possible supply disruptions.
Last edited: 05 September 2018
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